China's Not So Hidden Inflation

"It's not worth shopping in China," said one disgruntled middle-class Chinese consumer, adding, "If you can wait, do it elsewhere." The reason is simple - massive price inflation. As the WSJ reports, clothing and other apparel is on average 70% more expensive for consumers in China than in the US.

A basic iPad 2 is priced at $488 in China, where average per capita income is around $7,500; but the same tablet is $399 in the US, where average per capita personal income totals $42,693. Consumers pay nearly $1 more for a latte at Starbucks than in the US and stunningly A Cadillac Escalade Hybrid Base 6.0 costs $229,000 in China, compared to just over $73,000 in the US.

Government taxes and import tariffs are to blame for some of the price discrepancy, but, the WSJ goes on to note, for years the burgeoning Chinese middle class also seemed willing to pay more for products with consumer cachet, particularly imported goods - especially given the easy availability of credit.

But today more Chinese consumers are pushing back, weary of sticker shock - and enlightened by the ability to compare prices elsewhere, thanks to the Internet - and China is starting to crack down on over-zealous pricing.

Welcome to China's modern retail world, where the price of many goods is far higher than in many other countries, a disparity that is all the more stark considering the income differences.

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Clothing and other apparel is on average 70% more expensive for consumers in China than in the U.S....

Government taxes and import tariffs are to blame for a lot of the price discrepancy, but for years the burgeoning Chinese middle class also seemed willing to pay more for products with consumer cachet, particularly imported goods. And companies happily charged what the market would bear, even finding high prices could help provide a quality halo effect, winning customers psychologically. In many cases, when foreign manufacturers charged more, Chinese producers followed suit.

But today more Chinese consumers are pushing back, weary of sticker shock—and enlightened by the ability to compare prices elsewhere, thanks to the Internet and increased travel abroad.

Disgruntled shoppers like Guan Honglei, a 30-year-old finance worker who will shop only on overseas websites or in Hong Kong, have big implications for retailers that have raced to expand brick-and-mortar stores in mainland China.

"It's not worth shopping in China," said Mr. Guan, adding, "If you can wait, do it elsewhere."

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As China aims to build a more balanced economy that is consumption-driven, regulators have begun cracking down on companies they believe have unfairly swayed pricing in the market.

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The auto and pharmaceutical investigations are continuing.

Beijing is attempting to ensure that profit margins don't come at the expense of the people, said Rocky Lee, head of the Asia corporate practice at law firm Cadwalader Wickersham & Taft in Beijing.

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Many companies that have for years earned higher profits in China by selling to consumers who wanted premium products and status symbols, said Yuval Atsmon, a principal at consultancy McKinsey & Co.

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Experts say that price tags often also reflect the inefficiencies companies face in the Chinese market. ... Permits and bureaucracy cost; all of that is passed on to the consumer," Mr. Lee said.